The Straits Times Index edged 0.6% lower to 3,540.23 dragged down by shares of property companies and shipbuilders. The FBM KLCI slipped 0.1% to 1848.20, weighed by losses of YTL and Astro Malaysia Holdings.

U.S. officials are readying for talks in Washington this week with Chinese Vice Premier Liu He that are expected to help diffuse an escalating trade row between the two economies.

On Monday, the Wall Street Journal reported both countries were closing in on a deal that would give China's ZTE a reprieve from U.S. sanctions in exchange for Beijing removing tariffs on U.S. agricultural products.

Earlier the same day, President Donald Trump had pledged to help ZTE "get back into business, fast" after a U.S. ban forbidding American companies from supplying the Chinese company crippled business.

"Mahathir's pledge to implement institutional reforms and return to rule of law is very powerful because it gives a sense of confidence to businesses to invest," Chew said. "If executed well, this could translate to investment in much bigger way than what we have seen in previous years."

In Malaysia, investors also picked some of the stocks that were battered in knee-jerk reaction on Monday after the Alliance of Hope coalition swept to power to end a 61-year uninterrupted rule of the National Front.